A colleague asks, can a closely held company in the State of Washington issue stock options to just a few employees without preparing and approving the kind of complex stock option plan that is typical of a large public company? Can the company instead simply enter into separate stock option agreements with each individual employee?

The short answer: Absolutely, but the Company will need to (1) put the option contracts into writing, (2) provide copies to securities regulators in the State of Washington 30 days ahead of time, and (3) ensure that there are enough shares authorized in its Articles to fulfill the options when exercised.

Jim Hamilton, the author of a leading blog on securities regulation, posts today on a petition by the Managed Funds Association (the “MFA”) asking the SEC to amend Regulation D, which would end a ban on “general solicitation or general advertising with respect to private funds.” Jim Hamilton writes:

[E]liminating the ban would reduce the cost of capital for private funds and lead to greater efficiency in private offerings, said the MFA, which in turn would facilitate the allocation of capital and investment by private funds throughout the financial markets. Private fund managers face significant costs in seeking to comply with the ban due to its broad application, the limited scope of existing guidance, and the severe consequences of an inadvertent violation. Managers expend considerable time and resources when making any sort of communications or participating in industry events, and often take a conservative approach and refrain from such activity. These effects impose administrative burdens for managers and unnecessarily limit communications with potential investors, increasing the cost of obtaining capital for private funds.

The Petition is in addition to pending House and Senate legislation that seeks, in effect, to achieve the same outcome, albeit by legislation rather than by agency rule making. Interestingly, however, today’s petition is made only on behalf of private investment funds (i.e., hedge funds), and apparently is not intended for application beyond “private funds.” By comparison, the proposed legislation, if passed, would have far more comprehensive effect.

This article is a follow-up to a previous one that introduced Section 83(b), a provision of the Internal Revenue Code that rescues individuals from having to pay unexpectedly high income taxes on shares of stock granted subject to vesting.

To begin, the most important thing anyone needs to know about making the election is that Section 83(b) is unforgiving in the extreme: An election not made on time is the same thing as not making the election at all. There are no exceptions.

(As an aside, because of the severe consequences of missing the filing deadline, I highly recommend to my client companies that they implement a system for obtaining from those to whom they grant restricted stock a written and signed acknowledgment of having been informed about the need to make an 83(b) election, if at all, within a short time period.)

So, how is this election actually made? Well, while the IRS is a forms-oriented agency, it does not have any special form for effecting an election under Section 83(b). Instead, in Publication 525, the IRS instructs taxpayers simply to prepare a “written statement” that contains the following information: Continue Reading

Legislation that would allow companies to raise capital online in increments of up to $10,000 per investor sailed through the House in early November by a 407-17 vote. But the momentum to allow so-called “crowd funding” has slowed considerably in the Senate, as lawmakers mull whether unsophisticated investors are vulnerable when capital formation occurs online.

The rush to deliver a mechanism for small businesses to raise capital — a function that banks apparently remain too nervous to provide — would instead deliver a boiler-room-revival-program. Not that I disagree with the goal underpinning the legislation. It definitely ought to be easier for small businesses to raise startup capital. But not at the expense of abandoning common sense protections that help enhance confidence in our securities markets.

American Express is launching a $100M fund to invest in startups whose business involves digitial commerce. According to TechCrunch:

With the announcement of such a large fund, clearly American Express is hoping to be an active part of the payments and commerce innovations taking place outside of the company. While AmEx has been more active in forming partnerships and acquiring new technologies than some of the other credit card companies, the company still has ways to go. But being part of this ecosystem will certainly help the company see what new technologies are taking off in payments and perhaps even be a good way to find companies to acquire.